Question #10 - Reading 23 Residual Income Valuation

Reading: Reading 23 Residual Income Valuation

PDF File: Reading 23 Residual Income Valuation.pdf

Page: 6

Status: Incorrect

Correct Answer: A

Your Answer: B

Shared Context

- Calculate the intrinsic value of the company using a residual income model, assuming that after four years, Silo's residual income will decay over time to zero with a persistence factor of 0.3. A) $8.9. B) $9.2. C) $8.1.

Question

Calculate the intrinsic value of the company using a residual income model, assuming that after four years, Silo's residual income will remain constant forever.

Answer Choices:

A. $8.8

B. $11.4

C. $10.7

Explanation

= 0.38 0.31 1+0.11−0.30 V0 = $8.00 + [ + + ] = $8.92 0.24 1.11 0.26 1.112 0.29+0.38 1.113 PV of terminal value at T3 =

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